Monday, 4 September 2017

What’s next? – GOLD, OIL 04.09.17

Gold prices were higher in Asian hours on Monday following the launch of a North Korean hydrogen bomb over the weekend, which once again increased fear among traders.

Over the weekend, North Korea tested its sixth hydrogen bomb in response to joint military exercises between the United States and South Korea in the Korean peninsula.

The United States, Japan, China, South Korea and other countries have called for an emergency meeting at the United Nations Security Council on Monday.

The gathering will be under the radar of investors as they want to confirm the escalation of the conflict in order to relocate their assets into safe havens. By the time being, no military action seems likely, but rather strengthening sanctions against Pyongyang.

On the Comex division of the New York Mercantile Exchange, gold futures were trading 0.68 percent or $9.00 down at $1,339.40 a troy ounce as of 05:20 GMT.

The US Labor Department said the economy added 156,000 jobs against an originally estimated 180,000 jobs creation for August. The unemployment rate notched up to 4.4 percent while average hourly earnings rose by 0.1 percent, also down from a predicted 0.2 percent gain.

Labor market conditions and inflation levels have strong effect on monetary policy decisions. The Federal Reserve is now to decide whether to move forward with its normalization process or postpone further interest rate hikes until indicators show better performance.

According to Fed funds tracked by CME Group’s FedWatch program, market participants are currently pricing in a 36 percent probability of a 25 basis points interest rate move by December.

A rising interest rate environment makes gold less attractive as investment, considering higher rates increase demand for the US dollar, in which bullion is priced.

OIL

Oil futures were lower in early trading hours on Monday, as the Harvey Storm continued to weigh on the American benchmark and renewed geopolitical tensions in the Korean peninsula pushed the international Brent crude to the downside.

The US West Texas Intermediate crude futures were unchanged at $47.29 per barrel as of 06:10 GMT, while the London-based Brent contracts on the ICE Futures Exchange in London were down 0.82 percent to $52.32 a barrel.

US gasoline futures, which last week spiked due to tropical storm Harvey, retreated as the government released emergency fuel stocks as key refineries in the Gulf coast remained shut down and some were heavily damaged by the flooding.

According to the latest report from the US Federal Bureau of Safety and Environmental Enforcement, nearly 5.5 percent of the Gulf crude oil production, which accounts for 96 thousand barrels per day, continued unoperational on Sunday.

Analysts believe damages caused by hurricane Harvey stand between $150 billion and $180 billion, and that it could take months for the industry to fully recover.

The storm came from waters last week, hitting America’s energy heart, shutting down key refineries along the Gulf coast, disruption capacity and increasing concerns that oil companies would have to send their barrels to other states to turn crude into distillates.

Meanwhile in Asia, the geopolitical scene continued to dominate market sentiment. On Sunday, North Korea launched an hydrogen bomb atop an intercontinental missile. Defense Secretary Jim Mattis warned of "a response both effective and overwhelming" if Pyongyang threatened the US continental and unincorporated territories or any of its allies.

Ahead in the week, traders will be looking ahead to fresh crude inventories reports from the American Petroleum Institute on Tuesday and EIA’s official data on Wednesday.

Last week, the US Energy Information Administration said crude stockpiles fell by 5.392 million barrels in the week ended August 25, a larger decline than an originally estimated 1.9 m drop.